Curious About Cryptocurrencies & Blockchains? Start Here. (Part I)

By now you’re no doubt familiar with the hype surrounding cryptocurrency and its underlying blockchain technology. From business to finance to tech, “crypto” is the buzziest of buzzwords. To hear some people tell it, crypto will be the biggest revolution since the internet.

Others see it as merely a fad. So what’s the reality?

The last few years have seen popular cryptocurrencies such as Bitcoin and Ether (the currency of Ethereum) make huge jumps in the market, only to have their values dip months later. Yet crypto has proven more resilient than some initially expected, despite ongoing market volatility. Having weathered its initial growing pains, cryptocurrency is now graduating from a niche opportunity to a mainstream event that has seen significant institutional investment – even as some would-be investors struggle to pin down exactly what it is and how it works.

Whether you’re looking to invest in crypto or just want to gain a better understanding, this article explains the basics of blockchain technology and cryptocurrency transactions.

Cryptocurrencies

Cryptocurrency is in simplest terms a digital asset – that is, digital money that is stored electronically. Unlike traditional currency, cryptocurrencies are decentralized, meaning they do not rely on a single institution, like a government or bank, to create, distribute or manage them.

The most widely known cryptocurrency, Bitcoin, was also the first. It began as a white paper written in 2008 under the pseudonym Satoshi Nakamoto, and proposed a digital payment system that would be made possible by a new technology called “blockchain,” which is essentially a public ledger with cryptographic protections that ensure it is “immutable,” and resistant to tampering.

Blockchain

A blockchain is a database that stores information about digital resources, and also the peer-to-peer network that then helps to keep a continuous record of said information. While blockchain is best known as the technology behind cryptocurrencies like Bitcoin and Ether, its possible applications and use cases are wide open, including digital voting, secure transfer of medical records, copyright protection, supply chain management and more.

A public blockchain is a decentralized, distributed ledger, meaning anyone can view the transaction history. This ledger is shared across a peer-to-peer network of computers (called “nodes”) that maintain and verify changes to the history. No single entity owns or controls the ledger.

Each “block” in the chain contains batches of time-stamped transactions. When one block is confirmed, another is created; hence the name “blockchain.” The new block links to the preceding block, and no two blocks are alike. This makes it impossible for anyone to alter any single record retroactively without changing every subsequent block in the chain as well – doing so would require at least 51 percent of the network’s computing power. This structure is completely different from the standard practice of storing information on centralized, company-owned servers that are prone to hacks and attacks.

The process of adding these new blocks is called “mining,” and it takes the form of a race among the computers in the network to solve a cryptographic puzzle. Once the puzzle is solved, the peers in the network verify the result. Winning this race results in the “miner” reaping a “block reward” (currently 6.25 BTC on the Bitcoin network), with this process ensuring the integrity of every transaction in the blockchain.

In addition to the “proof of work” consensus algorithm described above that’s in use on the Bitcoin network and many other blockchains, there are alternate methods (including the more energy efficient “proof of stake”) to ensure the integrity of each network that are in use by such blockchains as Solana, Cardano and Polkadot.

How blockchain is disrupting industries

Currently, blockchain technology is making its biggest impact in the finance industry. Though its uses are still evolving and many of its proponents view it as a way to “cut out the middleman” of traditional financial institutions, blockchain, it’s quickly becoming clear, also presents major opportunities for banks and other entities in the financial sector.

These institutions are exploring the ways this technology can help them cut costs, speed up and automate business processes, boost security, and increase transparency. There is no doubt that blockchain technology is in the process of evolving the way financial services work, though there is still a lot of uncertainty about which projects will succeed.

What cryptocurrencies should I know about?

Crypto trading can be exhilarating, but it can also test your mettle. If you’re buying cryptocurrency for the first time, there are a few considerations to take into account in order to choose the best cryptocurrency for you and get the best value for your money. There are over 10,000 cryptocurrencies in existence, and major crypto exchanges such as Coinbase offer a curated selection. Some of the more commonly known cryptocurrencies include:

  • Bitcoin: The first and still the most valuable cryptocurrency.
  • Ether: The cryptocurrency of Ethereum, and the transfer of value in most blockchain-based applications, as well as in blockchain sectors including DeFi and NFTs.
  • Dogecoin: Began as a joke but thanks to memes and the Twittersphere has grown into one of the most valuable cryptocurrencies.
  • Stablecoins: A class of cryptocurrencies whose values are designed to remain stable relative to real-world assets such as the dollar. These include Tether (USDT), Circle’s USD Coin (USDC) and Binance USD (BUSD).

Practical uses for cryptocurrencies

However it’s created, a cryptocurrency is fundamentally money without borders and without any central controlling authority. This truly is a revolutionary concept of currency and one that breeds countless exciting possibilities.

One powerful application is as an equalizer to level the financial playing field, particularly for the underbanked population. In those communities around the world where local currency is unstable, where people don’t have access to bank accounts or don’t receive regular paychecks, having the ability to put money into cryptocurrency could offer a great advantage. These individuals would then be able to accumulate savings and begin to build wealth, as well as instantly share that money with family members around the world. Cryptocurrency would enable them to participate in a financial system that is safe and secure without having to meet the requirements of traditional systems.

Should I invest in cryptocurrencies?

In addition to its practical uses, crypto has become a popular speculative investment. However, investing in cryptocurrencies can be a risky venture as the crypto market can be unpredictable. Still, that hasn’t stopped a large and growing number of retail and institutional investors from taking the plunge.

These cryptocurrency investors typically fall into one of three camps.

  • HODLers: The first group, called HODLers, are banking on the long-term prospects of crypto and hold onto their cryptocurrency no matter how much its value might decrease.
  • Traders: The second group, traders, naturally do just that: buying and selling cryptocurrency as its price fluctuates in order to maximize profit.
  • Trail Blazers: These investors–who can be HODLers and/or Traders, on occasion–view cryptocurrency as a means to bypass, and ultimately reshape, the current economic system. They invest in crypto in order to help blaze a trail into their vision of a better future.

Whichever group you gravitate toward, investing in crypto should not be taken on without first doing proper research. For instance, there are questions as to the scalability of blockchain applications, in addition to other concerns, solutions to which are currently being debated. Cryptocurrency is very much in its early days, and no one can say for sure where it’s headed. But there are a few hints…

Predictions for the future of Cryptocurrency

While cryptocurrency is still evolving, it has clearly moved beyond the point of being merely a passing trend. For example, we’re already seeing cryptocurrency used as a viable option for payments. In addition, many brands are getting involved in various ways, particularly in the exploding area of NFTs (Non Fungible Tokens). Nike, Tesla, Coca-Cola, and Clinique have all made waves in this area, with others sure to follow in the coming months and years. Celebrities like Snoop Dogg are also getting in on the action, sharing their opinions on social media and promoting crypto investments.

One major looming question is whether or not cryptocurrency will become regulated or remain a bit like the “Wild West.” At this point, crypto’s regulatory fate remains unclear, but judging from recent activity in Washington, D.C., some form of regulation seems certain.

In the meantime, the hype around cryptocurrency doesn’t look to be going anywhere any time soon.  And, neither are we, as this is the first of a series of crypto and blockchain articles that will cover a variety of related topics that include DeFi, NFTs, the metaverse and more.